Tesco and Carrefour announce joint purchasing tie-up

Tesco and Carrefour have announced plans to enter into a “long-term, strategic alliance”, with the aim of getting better deals from multinational suppliers, cutting costs, and combating increased competition in their domestic markets.

The two sides said the agreement will initially last for three years and will cover their “strategic relationship with global suppliers, the joint purchasing of own brand products and goods not for resale”. It is hoped the tie-up will be formally agreed upon within the next two months.

The groups said they expect the deal to help improve the quality and choice of products offered to consumers, at “even lower prices”. They also stressed that the deal will help strengthen their relationships with suppliers and “create significant opportunities for those suppliers”, adding that both sides will continue to work with suppliers at a local and national level.

Dave Lewis, Group Chief Executive of Tesco, said: “By working together and making the most of our collective product expertise and sourcing capability, we will be able to serve our customers even better, further improving choice, quality and value.”

Carrefour recently revealed an ambitious transformation plan to cut €2bn in costs annually by 2020. Its Chairman and CEO, Alexandre Bompard, commented: “This strategic alliance between Carrefour and Tesco is a major agreement as it combines the purchasing expertise of two world leaders, complementary in their geographies, with common strategies. This agreement is a great opportunity to develop our two brands at the service of our customers. This international alliance further strengthens Carrefour allowing it to reach a key milestone in the implementation of its strategy.”

The deal marks the latest purchasing tie-up between major European supermarkets in the face of heightened competition from the discounters and online players. It is also likely to be seen as Tesco’s reaction to the proposed Sainsbury’s-Asda merger.

Neil Wilson, chief market analyst at Markets.com, said: “An entente cordiale between the two giants of British and French retailing is yet another sign that squeezing the cost base is the biggest priority for supermarkets as they seek to contain the discounters and protect margins."

“On both sides of the Channel, rising costs are putting pressure on margins. Meanwhile, every retailer is looking over their shoulder at Amazon and the potential disruption is could still cause in the grocery sector.”

Meanwhile, Patrick O’Brien, UK Retail Research Director at GlobalData, commented: “Tesco is obviously concerned by the increased potential buying scale of a combined Sainsbury’s and Asda, and both it and Carrefour are worried by the idea of Amazon making more ambitious moves in European grocery retail. However, it should be noted that a key focus of the tie-up is to reduce prices on own brand products, and this is more of a direct response to Aldi and Lidl, whose offers are heavily weighted towards own brand. Tesco and Carrefour have both struggled to match the discounters on quality and price, and the alliance should help it compete."

“For suppliers, this is another signal of battles ahead. Sainsbury’s and Asda have made it clear that it will target its largest suppliers for cost reductions by flexing their increased scale, and Tesco and Carrefour will look to do the same while reducing the number of branded products they sell as they increase their own brand ranges.”NamNews

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